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The Salience of Numbers: W-2s Now List Cost of Employer-Sponsored Health Insurance

Beginning in 2013, W-2s for firms who file at least 250 W-2 forms will list the amount of money that employers and employees spend on health insurance premiums. As the New York Times reports, “[t]o some, it will be a surprise, perhaps even a shock.” Many people insured through their employer have no idea how much health insurance actually costs. The W-2 provision will change this, providing a yearly reminder about how much employer compensation goes into health insurance rather than wages. This gives employees exactly one salient number about health care: the yearly cost of their employer-provided health insurance.

More information for consumers about the cost of health care is a good thing, but making the cost of health insurance more salient may have some unintended consequences. Employees will be better able to compare the benefits of jobs with higher salaries but no health insurance to jobs with lower salaries and health insurance. This may lead employees to opt for lower salary jobs with health insurance, which could help decrease the number of employees who seek government-subsidized health insurance. The W-2 provision could, however, have the opposite effect. Now that employees can easily compare the cost of employer-sponsored insurance to government-subsidized insurance, employees eligible for government-subsidized health insurance may buy insurance through an exchange and then opt for a higher-paying job that does not offer insurance. Employers may be willing to pay the tax penalty, which is much less than the cost of insurance.

While the ACA provision requiring non-grandfathered employer plans to adhere to a particular tier of actuarial value may help consumers understand the value of their health plan—not just its cost—“actuarial values are not an inherently intuitive idea for most people.” Lost take-home pay, on the other hand, is pretty easy to understand. Another unintended consequence of the W-2 provision is that the exact cost of employer-sponsored health insurance could become a marketing tool for firms looking to hire the best talent. Since it is extremely difficult to compare the value of health insurance plans, the only salient number for consumers is cost. All else being equal, employees will likely choose the firm with the highest per-employee health insurance cost, hoping that high costs translates into high value. This could penalize firms that provide lower cost but higher value plans, and ultimately lead to wasteful spending on insurance.

The W-2 provision will probably succeed in raising awareness about health insurance costs. It will also have unintended consequences. What is needed is more transparency for consumers about the cost and value of health care. The federal government should also take a hard look at the incentives governing employees’ choices between employer-sponsored and government-subsidized health insurance.